General Motors pulls $10m Facebook ads

The move calls Facebook's advertising model into question ahead of its IPO

Car giant General Motors has confirmed it will stop advertising on Facebook, after deciding that paid ads on the site have little impact on consumers' car purchases.

Commenting on the news, which comes just days ahead of Facebook's initial public offering (IPO), GM said it regularly reviews how it spends its marketing budget and adjusts its approach as needed.

“It’s not unusual for us to move our spending around various media outlets – especially with the growth of multiple social and digital media outlets,” a GM spokesperson said in a statement.

“In terms of Facebook specifically, while we currently do not plan to continue with advertising, we remain committed to an aggressive content strategy through all of our products and brands, as it continues to be a very effective tool for engaging with our customers.”

GM currently spends about $40 million on its Facebook presence, but only about $10 million of that is paid to Facebook for advertising, according to the Wall Street Journal, which first reported GM's plans to drop Facebook ads.

GM will continue to promote its products on the social network via Facebook pages, which cost nothing to create, but will no longer pay for dedicated advertising space.

The news comes as Facebook prepares for an IPO that is expected to value the company at $85 billion to $95 billion (£53bn to £59bn). GM's decision raises questions about Facebook's dependence on advertising, and its ability to sustain the 88% revenue growth achieved in 2011.

According to Gartner analyst Andrew Frank, however, the size of Facebook's audience and its level of engagement means that the social network will remain a strong player in the advertising world.

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“The top tier of advertisers that spend more than $500 million a year on media probably have less need to buy social media because their brands are already well known, they attract fans and so forth,” said Frank.

“Facebook advertising works best for finding a good restaurant, or a good travel destination – things where word of mouth really is important and where people don't already have brand awareness.”

Facebook is not entirely dependent on advertising. It also has an impressive gaming revenue stream, according to Frank, and the company confirmed this week that it is testing a new system that would allow users to pay for their posts to be prioritised in friends' news feeds.

Frank said that the company could be forced to explore new revenue streams after going public.

“Facebook really hasn't yet begun to optimise the treasure trove of data that they have about people for the benefit of advertisers. The kinds of targeting categories that they they offer today are fairly basic compared to what they could do in the future when they really start to dig into this,” said Frank.

“There's a great deal of upside potential in Facebook's data, and I really think that they haven't got around to focusing on that particular problem because they've been more focused on creating and experience for their consumers.”

However, he added that the size and knowledge of Facebook's audience is its main asset, suggesting that advertising is always going to be the biggest part of its revenue, even if it finds other ways to monetise.

We have been hearing for years how CIOs and senior IT professionals need to bury the hatchet with line of business managers and, instead of focusing on the latest bleeding-edge technology for its own sake, seek to better understand the overall strategic objectives of their organisations.